Illicit financial outflows from Africa: measurement and determinants

Illicit financial outflows can be defined as the capitals that leave from developing countries to tax havens and western economies as the consequence of political and economic instability and fear of taxation or confiscation. Nevertheless, the most important motivation of illicit flows appears to be the desire to hide accumulation of wealth generated by illegal activities such as corruption and tax evasion. African countries have experienced at least 610 Billions of dollars of illicit outflows over the period 2005-2014 (Global financial integrity, 2017). This huge outflow of financial resources could be used to finance productive investments, infrastructure, as well as social actions aimed to improve the life quality of millions of Africans. The main objectives of this paper are to analyze the evolution of illicit financial outflows from Africa and investigates their main determinant using a panel data model. The empirical analysis indicate that lack of governance and political instability are the main factors encouraging illicit outflows from Africa. Several actions can be undertaken by the government to reduce the magnitude of illicit flows. Indeed, governments must improve the transparency of financial transactions and tax information, enhance customs enforcement to detect intentional misinvoicing of trade transactions and finally require international companies to publicly declare all their financial operations and staff levels for each country where they operate.